Yahoo Q1 Earnings Mask Company in Transition

Positive numbers, but hard slog continues

To his credit, Yahoo CEO Scott Thompson didn’t begin yesterday’s first-quarter earnings call with a taunt. The embattled executive has had a rough go of things in his first three months—managing a proxy fight, a patent war with Facebook and an organizational overhaul that involves laying off 2,000 employees—but Tuesday’s earnings announcement was a bit of a bright spot—to an extent.

Yahoo’s first-quarter revenue ticked up 1 percent year over year to $1.2 billion, with net revenue of $1.08 billion, beating analysts’ estimates. As a result, Yahoo’s stock was up 3 percent Wednesday morning.

Looking inside Yahoo's ad business, after five consecutive quarters of double-digit declines in search revenue, the segment returned to the black in the first quarter, rising by 3 percent year over year to $470.4 million. Despite that positive sign, search page views fell by 8 percent, marking the third straight quarter of decline.

While search revenue has reversed its downward trend, Yahoo's display slowdown continued for the third consecutive quarter. Revenue for the segment dropped 2 percent year over year to $511.2 million, even though page views for Yahoo’s media properties rose by 10 percent, worldwide unique visitors for Yahoo properties grew by 6 percent and time spent on Yahoo’s media properties increased by 8 percent. Thompson said during the earnings call that he won’t be satisfied “until we’re taking share in the display market.”

Given that search and display accounted for 91 percent of the company’s revenue, the segments’ respective struggles indicate that despite a rather rosy earnings call, all is not well and good at Yahoo (in case all the recent reports surrounding the company wasn’t indication enough). Thompson admitted during the earnings call that Yahoo has overextended itself and that he plans to trim the fat.

“We’re consolidating technology platforms and shutting down or transitioning roughly 50 properties that don’t contribute meaningfully to engagement or revenue,” he said. Thompson didn’t specify which properties are on the bubble but listed what he views as Yahoo’s core media, connections and commerce businesses: news, finance, sports, entertainment and mail among “a handful of others.”

Thompson dodged a question concerning Yahoo’s plans for its Right Media Exchange; rumors have it that the company is shopping RMX. “We haven’t come to a conclusion on what the steps are that we need to employ moving forward” is all he would say about plans for Yahoo’s ad tech business.